Saturday, June 24, 2006

What is the future of NOKIA –SEMIENS Networks?

On Monday 19th of June Nokia and Siemens announced that they are creating a 50:50 joint venture called Nokia-Siemens networks by merging Nokia Network division and major part of Siemens Communication division .On paper this creates 3rd largest Telecom company in world with revenue of nearly 16 billion euros putting it at striking distance of both no 2 player Ericson ( around 16.5 billion) and No 1 Alcatel -Lucent (around 17.5 billion dollars ).so most of analyst and other players welcomed the move and agreed that this joint venture creates an opportunity to be no1 player in converged infrastructure space .My purpose of this posting is try to analyze the joint venture from product and technology perspective and not from financial number perspective as I am pretty sure those would have been done by Investment bankers who had advised both sides on this deal for which they would have received huge fees. As I had mentioned in my earlier posting on mobile industry consolidation these kinds of consolidations are Inevitable but is that alone enough to survive?

Now let’s look at the portfolio of each companies and their strength and customer base separately and then what would be their combined strength and in which segments they would be strong.

Nokia Networks: Before the merger it was No2 player in Mobile infrastructure space of Telecom infrastructure industry with Ericsson at Top position but the gap was quite bag between No 2 and 1 player.Nokia networks has quite strong product portfolio and IPR position in GSM and its evolutionary technologies like EDGE ,WCDMA ,HSDPA and HSUPA and also strong R&D investments in its long-term evolutionary path within the 3GPP standardization body .Nokia Networks is not a player in CDMA and its evolutionary path like CDMA 2000,EV DO and EVDV networks .On the Core Side of the network it has decent product portfolio to complement its radio network side of 3GPP network like in IMS product portfolio ,It has no presence in Fixed telecom infrastructure business though an attempt was made to break into broadband business but the product portfolio is very week compared to Alcatel who is the market leader. Then finally services side it is again no 2 behind Ericsson .Regarding its 150+ operator customer base most of them are mobile operators.

Siemens Communication: Infrastructure or network comprises bulk of Siemens Communication business .It has annual revenue around 9 billion euros with 70 % of it coming from mobile wireless side and rest 30 % from fixed Telco infrastructure business. Regarding product portfolio it was no 3 behind Nokia networks in GSM and its evolution path .Siemens had an alliance with NEC of Japan for 3G (WCDMA) systems and was very close to Nokia in 3G from market share perspective. another biggest asset of Siemens its strong position in Chinas version of 3G(SCDMA) which it had co developed with china government .If Chinese govt insists on deploying its version of 3G in china then Siemens will be in great position. Regarding fixed business it was quite decently positioned. It had quite broad range of product in different services like IPTV,Mobile TV etc.Regarding its customer base it has also around 150+ operator customers some of them are fixed Telco. In particular it has quite strong relationship with Deutuche Telecom and quite strong relationship with operators in Spain, Latin and South America...

Now coming back to how the combined company looks like ,It would not only create fortune 300 company but also a strong No2 in mobile infrastructure player in general with even stronger position in high margin 3G network business. Regarding converged market segment it would be in better shape compared to as individual companies. But it wouldn’t be in very strong position as touted in media its would have quite good portfolio in fixed –mobile convergence space but not in overall converged space .I will try to explain how I see converged space in my next posting .It would be quite strong w.r.t to operator relationship as there customer base complement each other nicely. Overall they are quite good positioned w.r.t to scale to play high volume and low margin emerging markets 2G business and in quite good starting point to develop Fixed –Mobile convergence portfolio and has already one of the best 3G position in world, But in long run i.e. 7-8+ years time frame when I suspect true convergence of access network and services with pure IP core/Backbone networks may play out I think this combined entity in present form may not be a winner.

Sunday, June 11, 2006

US Spectrum Auction

US Spectrum Auction a great news for US mobile consumers

In august this year 90 MHz of valuable spectrum in 1710-1755 MHz band will be auctioned by FCC in US .This would enable at least 2 to 3 new nation wide service providers to enter highly lucrative and growing mobile market. If you look at the present mobile service and player’s landscape it becomes quite apparent why upcoming auction is such a big thing, with potential to really change the mobile service space in favor of consumers.

Today US market is dominated by just 3 nation wide players Cingular, Verizon and Sprint. And couple of regional players. For me for the size and population of US this is totally pathetic condition which is pretty much evident if you look at the pricing structure and powers these players enjoy compared to rest of the world. One example to illustrate my point is the fact that most operators still have concept of airtime charging basically meaning that both the caller and called parties are charged when a call is made. This kind of practice existed is in most part of the world when mobile services were initially launched but consequently abounded except in US where still in continues just because of lack of real competitions.

FCC after freeing the spectrum from other government departments like department of defense etc at an expense of nearly 900 million dollars, plans to auction the much needed spectrum for advanced wireless services like 3G data services etc already some estimates suggest that 90 MHz may fetch government up to 35 billion dollars coming close to year 2000 Europe’s 3G auctions in value terms .My thinking is that this spectrum allows for 2 to 3 new nationwide carriers to enter the markets. Already some rumors are there that some of non traditional mobile players like cable service providers (ex: Comcast) may bid for that spectrum .some of these may bid so that they can build assets so that they can start offering converged bundled services. What ever may be the reason one things is for sure is that there is going to be quite good bandwidth available in the market which will start driving competitions and hence prices down.

Another thing that I think will happen is that more and more MVNO will be launched which will drive the cost down that has been the case in most part of Europe .Today without the new spectrum there are were little bandwidth available for launching mvnos but with new players entering the market with auctions they would be willing to sell part of their network bandwidth to MVNO so that they can recover some initial high capital costs, as they would not be able to immediately acquire huge customer base .There are already some MVNO planned in US who are planning to offer advertisement supported services to customers which by definition either allow to provide free or very low cost services .I hope this is just beginning of these kind of services.

So in short by 2007 I hope to see totally different and consumer friendly mobile service landscape in US.